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Dividend Growth Investing for Financial Independence

Updated on February 11, 2016
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I've been an independent financial planner for several years now. I try to keep my advice as objective as possible.

Have more freedom in life with a dividend income stream.

Working for a living isn't always fun especially when you don't have a choice. One avenue to have more of a choice in this capitalist system is to own the means of production. One way to own the means of production is through owning dividend paying stocks. A stock is a piece of a business. It's not just a squiggly line on a screen. Building a dividend stream to pay all your expenses is very challenging. It takes a long time, but you're giving up consumption today to have more choices in the future. Three ways to maximize this technique are: buying shares of companies that increase their dividend every year and have done so for a long time, continuing to make regular deposits throughout your life, and reinvesting the dividends.

Dividend growth investing requires research. You're looking for individual companies that have increased their dividends for a long time, say 25 years or more. There really aren't that many companies that have done that. I would say make an inventory of the companies you discover that do this and buy them when they are beaten down. Slow and steady wins the race! Think of this as a slow lifelong marathon. Enjoy the process. Also aim to pay one bill at a time with dividends until they cover all your bills. Many dividend increases beat inflation and the raise you get at work as well.

Continuing to add fresh money is vital. You can't just put in a grand and hope it turns into a million fast. It doesn't work that way. With the money from your job buy as much stock as you comfortably can each and every month without fail. This requires resolve and discipline especially when that new model flat screen TV just came out, and you just have to have it. Think of it as planting seeds that will turn into a fruit tree one day. The dividends are the fruit. The more seeds you plant the better.

Buying more shares of the same company with your dividend money is a way to turbocharge this process. This is called reinvesting the dividends. It taps into the concept of compounding money. And it's a powerful concept! Some taxable brokerages will do this automatically for free. If yours doesn't then just wait until you have a significant amount of dividend cash and buy into more shares. You will pay a commission this way, but that's why it's good to wait for your cash to build up. If you don't want to reinvest your dividends you can always just take them in cash now and pay for living expenses today.

Just remember: find companies that increase their dividends, keep adding money, and reinvest your dividends into more shares. This is one way to build an income that doesn't require punching a clock everyday. Don't get discouraged when your dividend is only a dollar. You have to start somewhere. Dividend growth investing requires some pain in the beginning, but in a couple decades you'll start to see an increasing income stream that you can live on.


© 2013 Blair Williamson, ChFC®

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